Rewards programs – Good, Bad, and the Ugly

We can not talk about credit cards without talking about the rewards programs and valuable incentives. The major credit card agencies each offer consumer reward programs. These programs offer bonuses and rewards for trustworthy, responsible, and qualified consumers. Some forms of benefits of these types of programs are:

1. Frequent flyer miles
2. Discounts and vouchers for partner retailers
3. Cash-back bonuses
4. Free online management, bill pay, and overdraft protection

Rewards should play a part in your evaluation of credit cards. Although reward programs are do not have a direct impact on your credit, they often involve solutions that promote positive money management principles and can help you meet your financial goals.

For instance, many credit card companies offer direct deposit into your credit card account. This means you are able to avoid missed payments, over-the-limit charges, and other common user mistakes. Another incentive that helps with credit management and credit repair is overdraft protection.

With overdraft protection, the creditor agrees to pay any charges or transactions for which you may not have the funds available to process. Banks, credit unions, and lenders have programs for this, but some credit card agencies offer lower rates or may be a better choice as an overdraft protection solution. Meaning, you can link your bank account to the credit card, to charge any overages to the credit card before any fees are applied! PayPal uses this method to ensure transactions they perform are successful, while also helping individuals avoid the embarrassment of a declined transaction.

Businesses may be more interested in the ‘perks’ of credit cards because these benefits have a direct impact on the profitability of the organization. Many businesses benefit from lower travel expenditures because of the type of business credit cards they carry. Creditors establish beneficial relationships with retailers, travel agencies, and other travel related organizations to benefit their customers, whom receive incentives for the utilizing the relationship.

In the late 90’s an explosion in business credit was experienced mainly because of flyer mileage. Nearly all credit card agencies offer a flyer program. In these programs, businesses and consumers receive frequent flyer points for meeting certain transaction criteria. For a business, that incurs regular travel expenses, these benefits can make the cost of credit worth the investment as a method for reducing direct cost as the flyer miles can be used to purchase airplane tickets, book hotel rooms, and rental cars in some cases.